HCA's incoming CEO offers his take on the future of the health giant as income jumps in third quarter

"If we can increase the acuity in our facilities, deliver the higher revenue per patient, put that on top of the same fixed costs, that produces a decent margin life for the company," said Sam Hazen, HCA's COO and future CEO. (HCA)

Nashville-based hospital giant HCA Healthcare's shares jumped more than 6% Tuesday after reporting a more than 7% jump in revenue as it released its third-quarter earnings.

HCA reported that its revenues increased 7.1% to $11.5 billion in the third quarter ending Sept. 30, compared to $10.7 billion in the same quarter a year earlier. The company's net income attributable to HCA Healthcare totaled $759 million, up from $426 million in the third quarter of 2017.

The company reported cash flows from operations totaled $1.7 billion with same-facility and same facility-equivalent admissions increasing more than 3%. They also reported same-facility revenue per equivalent admission rose almost 4%. 

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RELATED: HCA CEO R. Milton Johnson will step down

Trauma volumes were up more than 4%, bone marrow transplants were up 16% and orthopedic surgery and cardiovascular services volumes—which each carry a higher revenue per case than average—were factors in revenue growth, said Sam Hazen, who will become CEO of HCA in January, during a conference call with analysts on Tuesday.

That is the result of the strategic agenda the company has followed for about five years to create more clinical capabilities that allow it to take care of more acute-care patients, said Hazen, who is HCA's president and chief operating officer. The company is seeking to build outpatient facilities in each market to create the gateway for the HCA provider system when those patients need more complex care.

"If we can increase the acuity in our facilities, deliver the higher revenue per patient and put that on top of the same fixed costs, it creates a decent margin life for the company," said Hazen, speaking in his first earnings call since being named the incoming CEO.

The company favorably updated its earnings guidance ranges for the year, saying revenues are projected to range from $46 billion to $47 billion and adjusted EBITDA is estimated to range from $8.7 billion to $8.9 billion.

Hazen offered some insight with the upcoming transition in leadership for 2019. 

"While we can never predict with certainty how our business will perform, the environment in 2019 appears positive, in general, across our markets," Hazen said. He said the company is not expecting any dynamic change between the third and fourth quarter: "We're optimistic the trends of the company will continue into the fourth quarter and into 2019."

Hazen pointed to a completed $458 million acquisition of Memorial Health in Savannah earlier this year and a pending acquisition of Mission Health for $1.5 billion—both new markets for HCA. He said Memorial Health was in a "desperate situation" in which it "needed more capital, needed professional management and so forth. Mission, conversely, is a very successful system, well managed, great physicians, great financial results."

"Both of those systems are fundamentally market makers in the sense that they can execute on their own what we believe to be the right provider system strategy," Hazen said. He said the company will remain selective around criteria it uses to determine whether an acquisition fits as it seeks opportunities in new markets.

"I think the company is poised to take on more both from a balance sheet standpoint as well as an organizational capacity standpoint," Hazen said.

RELATED: Amid strong second quarter, HCA reports declining emergency department numbers

In addition to increases in revenue, officials did say the jump in third-quarter results could be partly attributed to depressed results in the third quarter of 2017 due to $140 million worth in damage at its facilities caused by hurricanes Harvey and Irma. In comparison, HCA recorded a $9 million impact from Hurricane Florence after it hit the Carolinas earlier this year and forced the evacuation of Myrtle Beach Grand Strand Hospital.

Operating results for the third quarter of 2017 also included a negative impact related to the Texas Medicaid waiver program of approximately $50 million.

The rise in the third quarter of 2018 is also partly attributable to other factors, such as a tax benefit of $132 million due to a reduction in its effective tax rate related to the impact of the Tax Cuts and Jobs Act passed by Congress late last year.

The company reported its balance sheet had $578 million in cash and cash equivalents, as well as total debt of $33.1 billion and total assets of $38 billion. It was the final conference call for CEO R. Milton Johnson, who announced in September he would step down at the end of the year.

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